As previously advised (refer to Categories/Chairmans Blog/ Federal EU/ EU & Euro Survey in the right-hand index column) on 20th June, the British Conservatives in Paris (BCiP) held a lively and stimulating debate chaired by Paul Thomson on the motion that Britain should join the Euro.
Given the current financial crisis facing the Eurozone, the dice seemed already loaded against the opening speaker Gregor Dallas who, however, proposed the motion in feisty style. He spoke of the Euro and the UK as being an enormously emotive issue steeped in politics that lots of people preferred to avoid talking about, including some members of the Conservative party. Yet some 60% of our exports go to the European Union of which two-thirds are to Eurozone countries. The political aspects can be traced back to the aftermath of the Second World War and the ambitious ideal to maintain the peace through the stabilizing influence of trading links developed within a single European market. Today this presents Britain with a market of around half a billion people, a major part using a single currency, and to compare this with the US our largest, single trading partner, the latter represents only 16% of our exports.
He elaborated that the single European market acts to stamp out the extremes of nationalism on the far right and socialism on the far left, with terms such as economic sovereignty or national sovereignty essentially blown out of the water by the collapse of the Bretton Woods system in 1971. Prior to that in November 1967 we had The Pound (£) in your pocket of PM Harold Wilson when the Pound was devalued by 14.3% and which seemed to change nothing for anybody living within Britain. However, Britain lost the trust of its important trading partners not only in 1967 but also in 1949 and after flotation in 1971. Now we have floating exchange rates and so-called hot money speculating on the highest return currencies and there is still no major improvement in exports for the UK.
Of course given the current financial crisis in the Eurozone, Germany is concerned about the so-called Club Med-countries but the Euro is a German invention and it tracks the former Deutschmark. It would be a disaster if Greece was forced to quit the Eurozone but in fact no such exit plan exists. There is no way back for national currencies, all members of the Eurozone want it to work and it is significant that China has already adopted it as a reserve currency. The UK must, therefore, join the Eurozone because it brings a strong, stable currency for a 21st century economy.
Michael Webster who opposed the motion saw the current economic situation as making it impossible for the UK to join the Eurozone. The Eurozone is also too dominated by Germany with e.g. the French economy suffering as a result. The market economy of the UK is completely the opposite of the dirigisme found on the Continent of Europe. In referring to the effect of interest rates and exchanges rates, he saw the need of the German economy for low interest rates as leading to cheap money and the resulting economic ruin of Eurozone countries such as Ireland, Portugal and Greece. At least the UK can only blame itself for the results of its own economic policies. Now Germany wants higher interest rates with its economy booming and this leads to the euro being overvalued in the money markets. As far as exchange rates are concerned, the UK has essentially devalued the Pound (£) in order to improve export trade, whereas its imports from Portugal have been reduced by some 50% due to the strength of the Euro.
A Swedish government minister has been quoted as saying that a reason for its successful economy is that it is not a member of the Eurozone. Indeed, the financial situation in the Eurozone is so bad that Greece will never be able to pay its debts, with e.g. ?45 billion owed to German banks and ?65 billion to French banks all under threat of default. Britain has already taken steps to withdraw some ?12 billion in bonds from the Eurozone as one step in trying to avoid the Greek debacle. Sterling is, therefore, still rated AAA in the financial markets by the rating agencies while the current credit rating of France is under threat, and French manufacturers are trying to relocate their production sites to lower cost countries. There is no possibility of the UK joining the Eurozone.
Seconding the proposer of the motion, Robin Baker quoted two traditional views of the Conservative party as 1) a belief in sound money and 2) a natural distrust of governments which manipulate the affairs of the country for their own, short-term electoral advantage. Sound money acts to counter the cancerous effects of inflation on the economy, with governments as major borrowers taking benefit from the effects of inflation, by being able to pay back their debts to lenders in devalued currency. The current UK inflation rate of 4.5 % would double prices in 16 years if left unchecked, whereas within the Eurozone France has inflation of only 2.0 %, Germany 2.3 % and even Italy only 2.6 %. The Eurozone, therefore, shows the benefit of taking the power to devalue away from national governments and also being able to dampen the effects of inflation through sound money.
Being able to devalue has also not helped the UK to grow relative to the 27 states in the European Union (EU). In 2002, the UK economy represented 17.2 % of the EU but by 2009 this had fallen to 13.3 %, while the share of the 16 Eurozone countries had increased by more than 2 %. During 2010, growth in Eurozone GDP was 30 % greater than that of the UK, and currently France is growing at twice our rate and Germany three times. Devaluation also does not seem to have helped our exports. In 2010, the Eurozone had a balance of payments deficit of ?30 billion but the deficit of the UK was 30 % worse for an economy only one sixth of the total Eurozone. From 2002 ? 2009 our share of total EU exports fell from 12.8 % to 10.4 % while total Eurozone world market share increased, our intra ? EU share also having fallen from 9.6 % to 6.4 %.
Our exporters suffer the commercial disadvantage of not sharing the same currency as 40 % of their customers and are forced to price higher to offset adverse currency movements or ask the customer to take the risk. In short, without the security of sound money and no benefits to growth in our economy or trade in being able to devalue compared with our European partners, Britain should join the Eurozone.
To close the formal part of the debate and confessing to being no economist, Evelyn Joslain the seconder of the opposition to the motion, chose to speak more passionately on behalf of the people of Europe in asking why the Brits would want to drop the Pound (£) for the Euro. The Euro is dying; you need to look more at defending what is left of your sovereignty and the problem of your soaring deficit is more pressing. She asked the audience to consider the success of countries outside the Eurozone such as Switzerland and Sweden which are doing much better. Germany is also very unhappy with what has become of its Deutschmark in the guise of the Euro and is faced instead with a Greek tragedy. Behind the Eurozone lies more European integration ? before it was to avoid war but now it has gone too far. We must avoid the excuses of the former Soviet Union that it only failed because the correct ideological measures were not sufficiently applied.
The Euro is a favourite of the currency speculators to short and coupled with excessive welfare payments and bail-outs is a recipe for disaster. It is easy to get into the Eurozone but hard to get out and there could also be a two-tier system between the north and the south. The Euro was forced on the population of Europe in an undemocratic way and the people are being ignored in a march towards a centralized super state. On the 100th anniversary of the Titanic, it is appropriate that the UK should reject the disaster of the euro.
The comments from the floor which followed the formal part of the debate touched on the emotional (all we have left is the Pound and our Royal family), lack of proper financial rigour (Germany & France were the first to press for relaxation of the 3 % limit on budget deficits), lack of transparency (surely they must have known what was happening in Greece?), a disaster for Europe if the Eurozone collapses, it is more a question of political will to hold Europe together than a financial problem, the euro is now one of the most important currencies but failure of the political cycle matched by failure of the financial cycle has changed the Euro, the Eurozone has steadily abdicated its responsibilities since its launch, as Conservatives we must balance ideology against pragmatism and now is not the right time to join and if the UK had been allowed into the EU earlier, it could have had more influence but it is too late now.
A vote was taken and the motion was defeated with 5 votes for but 15 votes against.
Returning home in the wee hours of the morning after that debate, I heard a recording on my car radio of deliberations in the Commons that day. The English, if this is representative, are in a state of delirium; it is a nationalist rant. There is no doubt about it, they want to destroy completely the euro. These new Nationalist Conservatives, which half-govern the country, should be a source of concern to any traditional Conservative with a sense of proportion.
As I mentioned in the debate, we have basically moved beyond economics into the domain of politics. The Eurosceptics? economic arguments are more than a generation out of date. Their politics is unhealthy. William Hague sounds increasingly like Marine Le Pen, and so vice versa. The Nationalist Conservatives resemble the French Front National. If the FN won next year?s French presidential election — which, as Evelyne suggested, is entirely possible — they would make a natural alliance with the Nationalist Conservatives in England (I deliberately do not say Britain). On the FN?s electoral plank is a ?return to the franc?. But you can?t ?return to the franc?, anymore than the Greeks can ?return to the drachma?. They would have to invent a new franc, a new drachma. It would be worse than chaos.
There is no need for such a disaster. It is a rather premature to say that the Eurozone is dying, as they were all repeating in Parliament on Monday. If sanity rules, the European Union will find a solution to the Greek problem. If nationalism rules, we must worry about the peace.
Our hopes must be that Greece will not ?return to the drachma?. As for Britain, she should be strengthening the euro, not weakening it, for we are talking about her own markets, her own wealth. That is why Britain should join the euro.
Those fifteen people who voted against me on Monday — I would guess primarily for emotional reasons — should have a serious think before they go to bed tonight.